Las Vegas Sands Fighting Itself in Macau

There's no way to sugarcoat it: The numbers coming out of Las Vegas Sands (NYSE: LVS  ) aren't good. A quarter after reporting record revenue and more than $1 billion in EBITDA, the company saw EBITDA decline and revenue only grow 10.1% despite opening an enormous new resort. Luck played a role, just like it did at Wynn Resorts (Nasdaq: WYNN  ) last quarter, but the results show more than just bad luck holding the company down.

The numbers
First, let's focus on the company's two main properties, Marina Bay Sands and The Venetian Macau. Marina Bay Sands had no more competition than it did in the first quarter or a year ago, but still it saw gaming revenue drop 7.5% to $550.2 million, overall revenue fell 5.8% to $694.8 million, and adjusted property EBITDA tumbled 18.5% to $330.4 million. The company had worse luck than last year but it wasn't wildly outside of normal ranges, so I wouldn't blame the performance on this alone. More important, rolling chip volume fell 5.9%, showing that high-end players played less in the quarter.

At The Venetian Macau the numbers were even worse, showing that Cotai Central is likely taking business. Casino, room, and convention revenue were all down, while promotional allowances were up year over year. Net revenue fell 11.7% to $649.4 million and adjusted property EBITDA fell 11.3% to $229.2 million. Again, high rollers played significantly less this quarter, with rolling chip volume down 16.5%, and unlike at other resorts, bad luck didn't play a significant role in the declining numbers.

Sands Cotai Central generated $265.6 million in revenue in the quarter and $51.8 million in EBITDA, likely stealing business from both The Venetian Macau and Melco Crown's (Nasdaq: MPEL  ) City of Dreams. We'll find out what the impact was when Melco releases its numbers.

Overall, revenue grew just 10.1% to $2.58 billion and adjusted property EBITDA fell a whopping 21% from last quarter to $844.7 million. Adjusted earnings per share were $0.44, below the $0.60 analysts expected and below the $0.54 in EPS the company reported last year.

The big question
After disappointing results from both Las Vegas Sands and Wynn Resorts, investors have to be concerned that the gaming boom in Macau is coming to a screeching halt. Growth has slowed dramatically and companies are paying higher commissions to junkets in an effort to get business. Add to that the increased capacity Sands Cotai Central brings to the table along with Lot 3, Wynn's new property, and another resort from MGM Resorts (NYSE: MGM  ) .

The value in gaming stocks just isn't what it used to be, and with questions about growth in China and a weak global economy, gaming stocks may not be a good buy right now. Las Vegas Sands currently has an 8.7 enterprise value/EBITDA ratio, and considering the direction results are heading, I think that's expensive right now, at least until I'm more confident in the direction of China's economy.

Interested in reading more about Las Vegas Sands? Click here to add it to My Watchlist, which will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown and Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (11) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2012, at 3:59 PM, JF125780 wrote:

    Travis,

    I enjoy reading your articles, but LVS has to be a great buy right now at only $36.00 a share.

    Maybe if Sheldon and the other insiders at LVS would take a break from dumping their stock that was so generously given "to themselves", and let the company grow, maybe the price of the stock would at least stableize __ and maybe even appreciate.

    Where is cp757 when we need him to save the company?

    Danny Kowkabany

  • Report this Comment On July 26, 2012, at 4:50 PM, MutualFundMonday wrote:

    "At The Venetian Macau the numbers were even worse, showing that Cotai Central is likely taking business. Casino, room, and convention revenue were all down, while promotional allowances were up year over year."

    SCC wouldn't have taken convention business as the whole point was to utilize Venetian's convention facilities with critical mass. Most of the drop in casino has to do with the VIP patronage accross the board being down. Promotional allowances are to be expected for a new casino. Its going to take a least a year for SCC to ramp up.

    "...companies are paying higher commissions to junkets in an effort to get business."

    I've seen nothing to support this being new. SJM has for the last 3 years been paying higher commissions for business.

  • Report this Comment On July 26, 2012, at 5:01 PM, cp757 wrote:

    Danny the company does not need to be saved and what I say is not seen by that many people. I am not happy with the numbers and Travis points out the warts. This stock will still be a 75 dollar this year because of growth.

    Travis I dont want to sugarcoat it but the fact is Net revenue increased to $2.58 billion up 10.1%.

    In the first half of the year Las Vegas Sands had Adjusted property EBITDA of 1,955 billion dollars on pace for 3,909 billion dollars for the year. The last two quarters will be stronger and give LVS over 4 billion in EBITDA. No other gaming company will come close.

    In Macau the reason Las Vegas Sands is going to dominate the market is because they have a total Table Capacity of 1,535 mass tables and thats 27% of all the mass tables, the other 5 operators average 14.6% of the table Capacity each.

    Las Vegas Sands has the highest number of Slot and ETG Capacity with 6,000+ slot machines and ETGs thats over 31% of all the slot machines in Macau and all the other operators average 13.8% of the slot Capacity each.

    The Hotel Rooms in Macau that Las Vegas Sands will open over the next few months is 9,324 4/5‐star hotel rooms. Thats 39% of all the 4/5‐star hotel inventory and the other operators average just 12.2% each.

    Las Vegas Sands has over 100 restaurants and food outlets with offerings that range from affordable to high‐end

    Retail Amenities are ,The Grand Canal Shoppes, Shoppes at Four Seasons, Shoppes at Sands Cotai Central and this is the Largest retail footprint in Macao.

    Traffic from China to Macau has increased over the last Twelve Months Ending June 30, 2012

    Guangdong has 95 million people and the number that went to Macau was 8,295,741 up + 12%

    Fujian has 36 million people and the number that went to Macau was 931,500 up + 23%

    Zhejiang has 51 million people and the number that went to Macau was 603,219 up + 20%

    Hunan has 64 million people and the number that went to Macau was 584,318 up + 44%

    Shanghai has 19 million people and the number that went to Macau was 487,537 up + 20%

    Beijing has 22 million people and the number that went to Macau was 328,157 up + 27%

    Chongqing has 31 million people and the number that went to Macau was 195,931 up + 45%

    Tianjin has 12 million people and the number that went to Macau was 120,615 up + 44%

    Las Vegas Sands will add 4000 rooms on lot 3 next to thr Venetian.

    Las Vegas Sands will build The Venetian Hengqin International Convention and Resort Project, a 10,000 room multi-billion dollar plan to develop parts of Hengqin Island into a convention and resort destination. The project is to include four million sq ft of convention space, hotels, retail, vacation homes, and golf, tennis and yachting amenities.

    The Zhuhai Municipal People’s Government, People’s Republic of China (http://bit.ly/OnXlsz), has issued an official letter informing the company that the Zhuhai Government has now established a Project Coordination Committee specifically related to the company’s proposed development of The Venetian Hengqin International Convention and Resort Project in Zhuhai.

    Hengqin Island is next to Cotai Central giving Las Vegas Sands added room capacity with a total of almost 24,000 rooms just in the Macau area.

    The reason I point these things out is this is a growth story and nothing has changed in that growth in Macau. No excuse in the numbers will allow for this drop to these levels but this stock is undervalued.

  • Report this Comment On July 26, 2012, at 5:09 PM, cbotrader wrote:

    You analysts kill me.....

    You all love this stock and are tripping over each other to praise it.

    Then a company has a missed quarter (only missed becasue the analysts were wrong) and now everyone hates it.

    Ever wonder why the public thinks is a rigged game?

    The long term fundamentals of this comapny are simply excellent and when the stock breaks a hundred, you will all be calling it a BUY!

  • Report this Comment On July 26, 2012, at 5:11 PM, cbotrader wrote:

    One more thing.....if you really feel that way, put up YOUR money like we do every day and short 10,000 shares.

    That would at least earn the respect of real traders...even if you are wrong.

    CBOTRADER

    Member CME since 1981

  • Report this Comment On July 26, 2012, at 5:51 PM, las305 wrote:

    Thank you cbotrader.....

    The Motley Fool absolutely trashed this stock during it's climb, then LOVED it when the trashing made them look like fools, and now are chomping at the bit to trash it again....all because of one quarter.

    I think they simply dislike Mr. Adelson.

    Fundamentals could not be better,

  • Report this Comment On July 26, 2012, at 5:58 PM, TMFFlushDraw wrote:

    @cbotrader

    I'm not a trader I'm a long-term investor who does put his money where his mouth is. Check out my history covering gaming stocks and you'll find my track record speaks for itself. I owned LVS from $2 to $33 and have sold puts on the stock in the last year. I've also owned MPEL in the past year personally, which doubled while I owned it.

    I've been higher on MPEL (which I own in a managed account) most of the last two years than I have been on LVS and it has outperformed LVS over that time.

    As for me flip-flopping when a bad quarter comes out -- I think cp757 would tell you I haven't been super high on LVS (especially compared to other gaming stocks) for quite a few months.

    As for everyone's price targets -- I'll take the other side of that call option.

    Travis Hoium

  • Report this Comment On July 26, 2012, at 6:34 PM, cp757 wrote:

    Travis you have been consistent with WYNN and supported them, but you have always been suspicious of LVS and put them down. I would love an article from you comparing the Altria Group ( MO ) with LVS. I would be interested on how you judge these two companies. The Altria Group (MO) has way over twice the number of shares outstanding with 2.04B and about the same revenue. They pay 4.6% dividend and future revenue will be flat to declining due to cigarettes going down in sales. They have 13.69 billion in debt and about 1.5 billion in cash. Las Vegas Sands will have 30% revenue growth and a 2.5% dividend and they have about 9.4 billion in debt and 3.5 billion in cash. Both stocks sell for about the same amount. How should we view that.

  • Report this Comment On July 26, 2012, at 6:52 PM, cp757 wrote:

    Travis I am having a hard time with you saying "As for everyone's price targets -- I'll take the other side of that call option.

    You said LVS was a good buy on 6/8/2012 at 45.13 and it was going up. Do you mean you think it is going down from 36.41 on 7/26/2012 or do you mean its going down from the 45.13 that you said it was a buy at 45.13 on 6/8/2012.

    Wait you probably mean its still going up from the 45.13 because you are a long term investor not a trader. You never close out a position because the fundamentals are what you invest in right.

  • Report this Comment On July 26, 2012, at 7:01 PM, ravens9111 wrote:

    Macau is a bubble waiting to burst.

  • Report this Comment On July 27, 2012, at 12:23 AM, JF125780 wrote:

    Thanks cp757. In October of 2007 when the investors (myself included) drove the company up to $148.00 a share the analyst too were yelling "buy, buy, buy"!

    LVS was only a step away from bankruptcy then, and I knew the 3rd richest man in the U.S. would save the company and protect his 89% interest (Adelson and the insiders now own 72% of the company).

    After the meltdown I remember Travis writing some nice articles about LVS and Wynn while the Street and Seeking Alpha were bad mouthing our LVS investment.

    Thanks cp757 for compiling all of the information about the growth of LVS __ I'm sill a believer.

    Danny Kowkabany

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